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Swinburne Research Bank http://researchbank.swinburne.edu.au Author: Morsillio, R. & Barr, T. Title: Innovation or disruption? The National Broadband Network comes to Australian TV Year: 2013 Journal: International Journal of Digital Television Volume: 4 Issue: 3 Pages: 239-260 URL: http://doi.org/10.1386/jdtv.4.3.239_1 Copyright: Copyright © 2013 Intellect. This is the author’s version of the work, posted here with the permission of the publisher for your personal use. No further distribution is permitted. You may also be able to access the published version from your library. The definitive version is available at: http://ingentaconnect.com Swinburne University of Technology | CRICOS Provider 00111D | swinburne.edu.au Powered by TCPDF (www.tcpdf.org) Innovation or disruption? The National Broadband Network comes to Australian TV Robert Morsillo and Trevor Barr, Swinburne University Abstract There are many forces for change confronting the well-established institutional arrangements underpinning Australian media industries, with commercial television, in particular, likely to be most challenged during the next five years. New distribution and delivery models connected to the proposed high capacity National Broadband Network (NBN), along with new content providers and changing viewer preferences are likely to drive major changes to existing television arrangements. In a rapidly changing environment, this article seeks to relate established concepts of innovation and creative destruction, disintermediation and disruption to the impact these new NBN mediated opportunities may have on existing TV arrangements, both free-to-air (FTA) and subscription (STV). It seeks to explore the extent to which TV-like services over the NBN might disrupt incumbent TV broadcasters; the extent to which changing consumer preferences and practices might disrupt current business models; and how incumbent TV broadcasters might be responding to these threats with their own innovations. Keywords NBN television Australia IPTV broadband innovation disruption Introduction In April 2009, the Australian Labor Prime Minister, Kevin Rudd, announced a bold National Broadband Network (NBN) policy that proposed the construction of a new fibre-to-the-premise (FTTP) network to connect 90 per cent of Australian homes, schools, and work places with speeds of up to 100 Mbps. A new company, NBN Co, with majority government ownership would build the NBN. The government agreed to fund the construction of this wholesale only ‘open access’ high-capacity fibre-based network to provide an equal playing field for all retail service providers (RSP). Whilst there has been widespread public support for this NBN plan, the opposition coalition parties have conducted a vigorous campaign against the current NBN policy, mainly criticizing the Government for not conducting a comprehensive cost benefit analysis. In April 2013 the opposition announced its revised policy based on fibre-to-the-node (FTTN) technology, relying on the incumbent carrier, Telstra, for the ‘last mile’ copper connection into homes and buildings. Under this plan ‘all Australians’ would have access to 25 Mbps by 2016, but at an alleged significantly reduced total capital expenditure. With the return of Kevin Rudd as Prime Minister in June 2013 the respective broadband policies of the major political parties are likely to be hotly debated in the lead up to the national election most likely due in September–October 2013. International eyes will be keenly watching what is likely to be one of the top five Australian election issues of 2013. It is not the intention here to canvass the alleged merits and shortfalls of these divergent NBN policies but to focus on the impacts that an NBN may have to conventional television industries in Australia. The NBN is adding another national network option to the range of video content transmission platforms already available in Australia today. These currently include terrestrial wireless, satellite, Digital Subscriber Line (DSL) and Hybrid Fibre-Coaxial (HFC) cable networks. Each technology platform has its advantages and limitations, and current and potential uses. These networks and some of the key services, applications and service providers are summarized in Table 1. Network Service Application Key Providers Terrestrial wireless Managed Free-to-air and ABC, Seven, Nine, Ten; Foxtel broadcast Subscription TV channels Unmanaged Internet Telstra, Optus, Vodafone via broadband connected smart-phones and tablets, USB dongles Satellite Managed Subscription TV Foxtel broadcast Unmanaged Internet SkyMesh, Activ8me, Clear broadband Networks, BigPond, Westnet Hybrid Fibre Coaxial Managed Subscription TV Foxtel (HFC) cable broadcast Unmanaged Internet BigPond Cable, Optus Cable broadband Managed IPTV BigPond TV, Fetch TV unicast Digital Subscriber Unmanaged Internet BigPond, Optus, iiNet Line (DSL) over broadband broadband/ Apple TV copper Managed IPTV/Video on BigPond TV, Fetch TV unicast demand Network Service Application Key Providers NBN Fibre Managed IPTV/ Video on BigPond TV, Fetch TV unicast demand Managed IPTV Fetch TV multicast Unmanaged Internet Apple TV broadband Table 1: Summary of Technologies. Given the much higher broadband capacity of the NBN, video content consumption may be an important driver for increasing the take-up and usage of the NBN, and so for its commercial success. The potential impact of the NBN might be conceived in the following ways: • Innovation – Because of its ubiquity, high-capacity and new product features, the NBN will support new ways of distributing high quality video content to households. For example, the NBN IPTV multicast service is a new addition to current broadband Internet functionality, which is likely to result in a new round of neo-Schumpeterian ‘innovation competition’ (Hanusch and Pyka 2008: 1) among entertainment, education and training services providers. • Disintermediation – Content providers from around the globe will better be able to directly access Australian consumers, potentially bypassing established ‘middleman functions’ (Tapscott 1996: 56). Since the NBN is structured as a wholesale-only network with national average pricing it potentially reduces the barriers to RSP addressing the whole of the Australian market. For example, they only need to connect to 121 Points of Interconnect (POI) as compared previously to approximately 5000 Telstra local telephone exchange sites. • Disruption – The NBN introduces a brand new infrastructure network competing with existing proprietary satellite, HFC cable, wireless and broadcast networks. It therefore has the potential to disrupt vertically integrated business models and lead to greater competition at each horizontal layer – from content production, through distribution, to end-user connectivity and consumption preferences – thus potentially affording greater opportunities for ‘disruptive innovation’ (Christensen 1997: xviii). 1. Innovative concepts The three innovation theorists cited above – Schumpeter, Tapscott and Christensen – would seem to provide useful frameworks to analyse and assess the impact that the NBN might have on existing media industry arrangements. Schumpeter Joseph Alois Schumpeter (1883–1950), whose seminal work on economic theory generated a whole new branch of the discipline, highlighted the dynamic nature of economic activity, and the role of innovation and entrepreneurial firms that he considered drive the economy forward in a process of ‘creative destruction’ of older structures, technologies and behaviours. Every piece of business strategy acquires its true significance only against the background of that process and within the situation created by it. It must be seen in its role in the perennial gale of creative destruction; it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull. (Schumpeter 1942: 83–84) Schumpeter emphasized innovation in cost and quality, rather than simple price competition, as a key success factor for new firms: ‘Generally, one may say that novelty, i.e. innovation, is the core principle underlying the neo-Schumpeterian approach. Innovation competition takes the place of price competition as the coordination mechanism of interest (Hanusch and Pyka 2008: 1). This offers a framework to analyse the impacts of rapid technological change occurring in the Australian telecommunications and media industries, including ‘the breakdown of business models that have served cultural industries like music, film, television for decades’ (Cunningham 2010: 21). Krafft (2008) notes two sides to Schumpeter’s dynamism at work in the telecommunications industry: ‘a quantitative evolution process which proceeds from the emergence of a number of new communications technologies [… and] also qualitative since the traditional telecommunications industry […] was progressively transformed into a new industry, the info-communications industry’ (Krafft 2008: 622). The advent of the NBN in Australia has some of the hallmarks of this dynamic innovation process, including, quantitatively, the introduction a new universal communications technology platform providing high capacity broadband and multicast IPTV capability, which, qualitatively, may give further impetus to the transformation of incumbent telecommunications, information, health, education and media industries. Tapscott In 1996 Don Tapscott wrote ‘disintermediation’ was the process where ‘middleman functions between producers and consumers are being